AMAZON PINK DOLPHIN 19/01/2018
A rig drills in the Ecuadorian Amazon. Ecuador is seeking investment in its oil and gas sector. (Source: Shutterstock.com)
Ecuador is not typically the place people think of for booming oil production. Its output has remained stable over the past 10 years due to relatively stagnant exploration activity. But there is plenty of unharnessed potential, and the country’s new administration under President Lenín Moreno is hinting at taking advantage of it.
According to the 2017 BP Statistical Review of World Energy, Ecuador holds 8 billion barrels of proved crude oil reserves, which ranks the country as having the third largest oil reserves in South America after Venezuela and Brazil. However, most of the untapped riches are under the Amazon, namely in the easternmost Oriente Basin. The majority of the resources are believed to be heavy to medium API grade.
Under the previous administration of Rafael Correa, declining oil prices hit government revenues, leading the country to rethink oil dependence. It remains one of Ecuador’s most profitable industries. And the new administration has signaled greater interest by opening the gate to new investments.
Local media recently reported that President Moreno met with Halliburton, Baker Hughes, Repsol and Petrosud-Petroriva consortium executives on Aug. 7 with the hopes of luring attention to new E&P targets. Repsol and Petrosud-Petroriva already operate acreage in the country, while the oilfield services giants serve plenty of customers in the Andean nation.
On top of that, Ecuador’s government expects investment to bloom with a new round of blocks. The 2017 Minor Fields tender, which was presented by state-owned Petroamazonas EP in July, includes 15 oil-producing blocks located throughout the eastern provinces of Sucumbíos, Orellana and Napo. An additional 191.5 million barrels of 3P reserves lies in these blocks and with that, roughly US$1.2 billion is expected to flow in over the coming years. The crown jewel is 10-year-old Drago Block, with 42 million barrels of 3P reserves. The block yields an average 10,700 barrels per day (bbl/d).
According to the tender’s proposed calendar, negotiations for the open bidding round are underway. Hydrocarbons Minister Carlos Pérez recently told local media that there will be two more tenders offered through the end of this year and 2018. The former will look into existing acreage—the government has 21 blocks outlined that could be up for grabs—and the latter seeks to explore the untouched southwest.
Although the exploration blocks available for next year have not been announced, the country has plenty of seismic data to sweeten new prospects. And despite the fact that the country boasts 37,677 kilometers (km) of 2-D seismic, 67,661 km of processed 2-D as well as 11,356 of square kilometers (sq km) of 3-D seismic and 12,552 sq km of processed data, plenty of opportunities for seismic collection companies will most likely follow as well.
Currently, state-owned Petroamazonas EP leads production in Ecuador. Total production averages 413,000 bbl/d from 1,519 wells across the country.
Next up is Andes Petroleum Ecuador, a Chinese consortium made up of state-owned companies China National Petroleum Corp. (CNPC) (55%) and China Petrochemical Corp. (Sinopec) (45%). With only three blocks in the Pastaza and Sucumbíos provinces, the consortium produces an average of 28,000 bbl/d.
With 19,000 bbl/d on average from two blocks in the Orellana province, Ecuador’s Repsol unit is the next highest producer. Enap Sipec, or Enap Sipetrol S.A., the Ecuador branch of Chilean national oil company ENAP, has a daily average output of 17,400 bbl from two blocks in Orellana.
When the state-oil company’s production is compared to private firms’, the difference is remarkable. The latter produces about one-fourth of Petromazonas EP’s daily production. However, in terms of wells, private companies sum up 1,869 active heads.
Drilling activity is slim to none. Petroamazonas EP is the only firm currently drilling—three wells. But once new players come in, increased oilfield services could also usher in opportunities beyond majors for specialized small to medium players willing to set up shop in Ecuador.
All in all, Ecuador wants to revamp its oil potential and it has the opportunity to do so under its new administration. While it has plenty of crude prospectivity, oil prices need to continue rising not only for E&P ventures to be profitable for newcomers but also so the government can reel them in with enticing contractual terms.
Ecuador Energy: New Course? Opinions from Ecuador’s right wing “Extractivist Lobby”
The appointment of Halliburton veteran Carlos Pérez as the new minister of hydrocarbons brings hope for change, experts say. (Photo: Ecuador Hydrocarbons Ministry)
Will Ecuador’s new president change course on energy?
BY LATIN AMERICA ADVISOR
Rafael Correa concluded a decade in office as Ecuador’s president when his former vice president, Lenín Moreno, succeeded him last month. During his presidency, Correa increased state control of the country’s oil and gas sector, restructured state energy companies, struggled with the massive Eloy Alfaro Refinery of the Pacific project, and launched the failed Yasuní-ITT initiative, which would have had wealthier countries pay Ecuador in exchange for it forgoing the extraction of oil in the Yasuní National Park in order to preserve biodiversity and limit carbon emissions, among other measures. What will be Correa’s legacy for the country’s energy sector? How will Moreno seek to revitalize output in the sector, which has been hard-hit by low oil prices in recent years? What should Moreno prioritize for the energy sector, both in the short and long term?
Mario Alejandro Flor, partner at Bustamante & Bustamante in Quito, Ecuador: Rafael Correa will be remembered for having invested in renewable energy sources, particularly in hydroelectricity. Thanks to the investments made in the past decade, more than 80 percent of the energy Ecuador consumes comes from hydroelectric power. This means cheaper energy, less environmental contamination (as compared to thermoelectric generation), and energy exported to neighboring countries. Nonetheless, and specifically with regard to oil matters, President Lenín Moreno has the challenge of improving confidence in the country for the big global players and making Ecuador attractive for huge projects. For this purpose, he might have to analyze what type of upstream contract with private oil companies is most convenient for the interests of both parties. Moreno could face certain budgetary restraints. Petroleum pre-sales, OPEC agreements and keeping domestic production up are significant issues that the new president will have to bear in mind. Furthermore, in light of the somewhat bleak outlook for the petroleum industry, Moreno will focus on other areas of natural resources extraction. Certainly, mining will be a prevailing option for the new government’s development strategies.
Ramiro Crespo, president of Analytica Securities in Quito: Correa’s legacy is a disappointment for the energy sector. He assumed that high oil prices would continue indefinitely when he changed the production-sharing agreements to service contracts. He expelled first-rate international operators in favor of little-known companies that are now making a considerable profit despite low oil prices. Service contracts provide an incentive to overproduce and manage reserves poorly. The Yasuní-ITT project was a complete façade and resulted in the area neither being protected, nor the project being developed according to plan. The country doesn’t have the funds to invest, and low oil prices mean the fields will have to produce more than twice the amount planned in order to achieve the same returns. Correa fostered an environment where corruption ran wild. The Petroecuador scandals resulted in hundreds of millions of dollars leaving the country through suspect contracts. High costs, too many employees and little strategic direction have resulted in debts to suppliers of more than $2 billion. Now the foreign debt-to-GDP ratio is ludicrously high, and the country’s future shipments of oil have been sold to China in opaque deals. There is much doubt that Moreno will bring significant change if Correa continues as a shadow president. However, there is hope with the appointment of Halliburton veteran Carlos Pérez as the new minister of hydrocarbons. The country’s priorities should be to leave OPEC and increase production in an environmentally conscious fashion, and to list the national oil company’s shares locally and abroad to force them to be more competitive, accountable and transparent, as there is currently no independent auditing firm that is willing to give an audit opinion for these companies.
Jose L. Valera, partner at Mayer Brown: Correa’s legacy for Ecuador’s energy sector is poor. When oil prices were high, he strong-armed all the foreign oil companies into giving up their profit-sharing contracts and signing new contracts under which they would become service providers. Under the service arrangements, all production belongs to the state, and the company is paid a fixed fee per unit of production delivered to the state, plus reimbursement of certain costs. Correa sought to keep all the upside of rising prices for the state. He put Ecuador firmly on the side of resource nationalism and state control in the oil sector. Correa made a choice: instead of ensuring through competitive contracts that Ecuador’s population is adequately and efficiently supplied, and that exportable surpluses increase, he instead opted to maximize short-term rent to spend more while completely disregarding the long-term development of a diversified, stable and strong economy. Ecuador’s oil production has been stagnant for many years, and as a result of increased domestic demand, the exportable surpluses are ever lower. The drop in oil prices for a country that relies heavily on revenue from crude oil exports has been devastating. Ecuador is not currently creating the conditions necessary for the private sector to help meet its challenges. Moreno has all the legal tools necessary to revitalize output in the sector if he implements pragmatic policies, instead of being driven by ideology and short-term opportunism. Many countries are attracting capital for exploration and development of their hydrocarbon resources. All Ecuador needs is changed policies. Oil is in the ground, waiting to be extracted.
Gustavo López Ospina
Editor: Pieter Jan Brouwer
“Amazon Pink Dolphin” is the official blog of SELVA-Vida Sin Fronteras. The intention of the blog is to generate debate on environmental issues; the Amazon Rain forest in particular. Contributions and support are done on a voluntary basis and do not imply institutional affiliation. Similarly opinions expressed in this blog do not necessarily represent the official position of SVSF.
All Title photographs of the Amazon Pink fresh water Dolphin are the creation of Kevin Schafer.